Conditional Cash Transfers, Schooling Decisions, and Labor-Market Conditions

Abstract Does the effectiveness of an education policy depend on the job opportunities in the local labor market? This paper provides a theoretical and empirical investigation of how schooling decisions respond to conditional cash transfer programs, across areas with different exposure to export manufacturing. Results show that Mexico’s PROGRESA program, documented to have increased educational attainment, was less effective in areas with more export-oriented manufacturing jobs. A theoretical model, combined with empirical evidence, suggests this is because these jobs generate more convex opportunity costs of schooling. Consistent with this, the heterogeneity documented is strongest among those old enough to be working in factory jobs. In addition, this heterogeneity is primarily driven by jobs that directly influence schooling opportunity costs: low-wage jobs and jobs for school-aged workers.